I would have been perfectly content to get through life without ever reading a credit-rating report.
But then Moody’s had to cause a ruckus with its recent downgrade of Chicago’s credit rating, and I felt compelled to see what it was all about.
In particular, I wanted to read Moody’s explanation for why it dropped the city’s bond rating to junk status, thus making it even more expensive to keep the city government running, which means we’ll have to pay more in property taxes.
As you can see, there’s no end to the torment I will suffer to try to figure out what the hell is going on around here.
Before I get to the details, you should know something about credit-rating reports. They’re supposed to be independent analyses of a government body’s financial strengths and weaknesses.
But they’re written by ratings agencies in business to serve clients and not necessarily to lift public bodies or taxpayers. Investors read the reports to determine whether to loan the government money by buying its bonds.
So we’re not talking about Newton sitting under an apple tree. The credit reports serve the interests of people out to make money.
The lower the rating, the higher the interest that the government pays to borrow the money. After all, it’s only fair for investors to charge more for the risk of spotting money to potential deadbeats.
Not that I’m saying Mayor Emanuel’s Chicago is a deadbeat. I’m just paraphrasing Moody’s.
Anyway, I read Moody’s recent reports on the city and the Chicago Public Schools to see if it discovered that Chicago has started sliding into the lake—that whole neighborhoods are going under, hundreds of businesses are collapsing, or thousands of residents are skedaddling for the suburbs.
But that’s not the case. In fact, I have to agree with Mayor Rahm Emanuel—and I don’t say that often—that Chicago seems to be doing relatively well as it continues to rebound from the last recession.
In fact, Moody’s agrees too: It says that one of the city’s strengths is a “very large tax base” that “reflects Chicago’s role as one of the nation’s largest and most diverse economies.”
Not that this will help me get over the Bulls’ latest loss to LeBron and the Cleveland Cavaliers.
But the truth is that we’re still basically the same old city we’ve been for the last 30-odd years.
That is, Chicago is a relatively prosperous town with a penchant for electing mayoral autocrats who can impose virtually any tax hike they want—including the one Mayor Emanuel will most likely impose to help us cope with our mounting pension obligations.
Don’t get me wrong: Moody’s doesn’t seem particularly concerned with our autocratic ways. On the contrary, the agency seems to have a crush on the men and women Mayor Emanuel selected to manage the affairs of the city and the Chicago Public Schools.
Under the category of Chicago’s “strengths,” Moody’s lists “CPS management” for “streamlining program expenses.”
Clearly, the folks at Moody’s rarely read the local newspapers, which detail a steady stream of CPS scandals, scams, and bumbles.
As I was writing this, the Sun-Times reported that CPS is going to have to pay $7 million more than expected to Aramark, the private company hired to clean schools. Apparently CPS overlooked 22 schools when it asked companies to bid on the school-cleaning contract.
How can you overlook 22 schools in a system you run and still win plaudits for effectively running the system? I eagerly wait for the next credit-rating report to find out.
In contrast, in the category of “challenges” faced by Chicago, Moody’s lists the “reduced cost cutting options following the closure of 50 schools several years ago.”
In other words, what good is a school if you can’t close it?
Also on the list of challenges is the Chicago Teachers Union, which Moody’s calls “a powerful union that may impede, and essentially limit, the district’s ability to reduce costs.”
Just think how much money we could save if CTU would let us fire teachers and force those Aramark janitors to do some teaching in between mopping the halls.
Moody’s does note that CPS also faces the challenge of “high fixed costs associated with debt service.”
But it refrains from making disparaging remarks about the hordes of lawyers the bankers would employ to “impede” any effort by CPS or the city to avoid paying every last nickel in interest.
Because as we all know, interest payments to bankers are legitimate, whereas salaries for teachers are a waste.
The primary reason for Moody’s big downgrade is that recent state supreme court ruling that essentially nixed a law scaling back state pensions. That probably means Mayor Emanuel won’t be able to unilaterally slice city pensions either.
Look, I realize we’re facing some pretty hefty tax hikes as Mayor Emanuel finally gets around to paying the pension obligations that he—and former mayor Richard Daley—should have paid long ago.
But we’ve know this for years.
In his first term Mayor Emanuel took the risk of trying to limit tax hikes by forcing unions to take pension cuts. Who can forget his old habit of dropping in on firehouses to tell firefighters he had no choice but to reduce their pensions?
Now the time has come. On the upside, the city is probably in a better position to handle a tax hike than it was in 2011. At least the downtown real estate market is picking up. Hardly a day passes without a report in the business press about a downtown building fetching millions more than its delighted owners ever imagined.
Not that these downtown property owners won’t whine when they get their tax hikes.
In fact, I feel a good whine coming on myself.
Still, there’s no good reason for Moody’s gloom and doom about Chicago financial future.
Unless this whole credit rating racket is another weapon in the fight against unions or an opportunity to make even more money for Wall Street—or both.
In any event, get out your wallets, Chicago. It’s time to start settling the bill. v